You may be wondering why the W-4 form you fill out when you get a new job is so important. Well, it is because it is the form that tells your employer how much to take out of your paycheck each pay period for taxes. These are called income taxes. The tax form lets the employer, and the IRS, know if you are single or married, if you have dependents, if you have childcare expenses, or if your spouse works. These are called personal allowances, and the number of allowances determines how much income tax will be withheld from each paycheck. What does all this mean? Some people really only think about paying taxes once a year in April. By having taxes withheld from each paycheck, you are actually paying taxes every single time you get paid, and these are called income taxes. Income taxes go to the Federal Reserve Bank, and this is the way that the federal government gets income.
Employers are required to withhold income tax from all of their employee’s paychecks, so filling out your W-4 form correctly helps ensure that you are paying just the right amount of income tax. If you decide to have a lot of exemptions on your W-4, it means that you will get less money taken out of your paycheck than someone who has nothing exempt from their paycheck. The more exemptions you have means that less money that is taken out of the paycheck. However, if you have many exemptions, you are not likely to get a refund at the end of the year, unlike someone who has no exemptions. They will likely get a return come tax season.
Even though you have been paying taxes all year, you still have to file your income taxes in April. You will have to fill out one of the many types of 1040 forms. You will be sent a form in the mail that is based on your previous years tax information. Make sure that this is the correct form because if their have been any significant changes, you may need to fill out a different 1040 form. Filing your income taxes is a way to ensure that you paid the right amount throughout the year. If you have paid too much, you will most likely get a tax return, and if you paid too little, you will have to pay that money to the IRS.
The tax system that is present in the United States is progressive, which means that people who make more money have a higher tax rate, and people who make less money have a lower tax rate. The rate that you pay taxes at will vary depending on how much you have made throughout the year. This has caused much debate among politicians and citizens in the United States. Many people believe that there should be a flat tax, meaning that everybody will pay a single tax rate, no matter how much money they make.
The money from all these taxes goes towards many things. Some of these things include: national defense, veteran’s benefits, education, job training, income security (money for those in need, food and nutritional assistance), and Medicare and Medicaid. There are of course other places the money goes to, and these are just a few of them.
Income taxes may seem confusing, and people may not like looking at their paycheck and seeing their money going somewhere other than their pocket, but by having a better understanding of income taxes, it may be easier to see why it is done.